Because they are the natural target for respiratory pathogens, primary human respiratory epithelial cells provide the ideal in vitro system for isolation and study of human respiratory viruses, which display a high degree of cell, tissue, and host specificity. Human coronavirus HKU1, first discovered in 2005, has a worldwide prevalence and is associated with both upper and lower respiratory tract disease in both children and adults. Research on HCoV-HKU1 has been difficult because of its inability to be cultured on continuous cell lines and only recently it was isolated from clinical specimens using primary human, ciliated airway epithelial cells. Here we demonstrate that HCoV-HKU1 can infect and be serially propagated in primary human alveolar type II cells at the air-liquid interface. We were not able to infect alveolar type I-like cells or alveolar macrophages. Type II alveolar cells infected with HCoV-HKU1 demonstrated formation of large syncytium. At 72 hours post inoculation, HCoV-HKU1 infection of type II cells induced increased levels of mRNAs encoding IL29,CXCL10, CCL5, and IL-6 with no significant increases in the levels of IFNβ. These studies demonstrate that type II cells are a target cell for HCoV-HKU1 infection in the lower respiratory tract, that type II alveolar cells are immune-competent in response to infection exhibiting a type III interferon and proinflammatory chemokine response, and that cell to cell spread may be a major factor for spread of infection. Furthermore, these studies demonstrate that human alveolar cells can be used to isolate and study novel human respiratory viruses that cause lower respiratory tract disease.